During a period of steadily rising costs,the inventory valuation method that yields the highest reported net income is:
A)Specific identification method.
B)Average cost method.
C)Weighted-average method.
D)FIFO method.
E)LIFO method.

Question

Quizplus · Accepted Answer

In a period of steadily rising costs, the FIFO (first-in, first-out) method would yield the highest reported net income. This is because the FIFO method assumes that the first goods purchased are also the first goods sold, so the cost of goods sold is based on the lower, earlier costs. This results in a higher gross profit, which in turn leads to a higher net income. Therefore, using FIFO during a period of rising prices will yield a higher net income due to lower cost of goods sold.

During a Period of Steadily Rising Costs,the Inventory Valuation Method